There are more than a hundred of different strategies for the binary options market. Some use chart patterns on the price chart, the others use indicators, some use candlestick analysis, and so on. There are mixed strategies that use several different instruments in their operation algorithm. Many of the strategies are difficult to understand for the novices to the market, and at least a small “baggage” of the experience and knowledge is needed to trade successfully under them. But there are also quite simple and at the same time profitable strategies that even a novice can grasp.

Today we will review one of the simplest strategies based on analysis of the “Japanese candlesticks”, which was called “Trend Reversal”. The strategy is most often used for intraday trading to make profit during the trading session. To do this, we will monitor the daily chart in the Meta Trader 4 terminal.

The strategy is based on the fact that any movement is never infinite. If the price has been moving in one direction for a few days, one day it will go in the other.

That is, if we get “bullish” candles over a few days, we need to wait for a day when a long “bearish” candle is formed on the chart that may include some of the previous candles or, at least, the range of the previous day in its range. Such candle can indicate not only a reversal of the trend, which, by the way, occurs not so often, but at least a correction to the previous movement.

The same situation can also be on the “bearish” trend, when a decrease in one day is followed by a sharp rise and draws a big bullish candle. We picked the chart that can show the two signals at a time.

As you can see, the trend reversal has occurred only in the first case, while in the second it was a correction. In any case, it did not prevent a trader from earning in both cases. Now that we know how to identify the signals of the strategy on the chart, let’s proceed with the points of entry into the deal.

TRADING RULES

Points of entry into the option to buy:

From the point of view of the “Trend Reversal” classic strategy, the options to make a deal with the Call option should be searched after any “bearish” (dark) candle.

However, as practice shows, such signals are very inaccurate, and therefore, we recommend to look for the signals to buy at the formation of two or more candles. Of course, there will be fewer candles, but they will be more reliable.

So, we buy if after two days of falling prices and the formation of two dark candles, the price began to grow and form a white candle on the chart on the third day. Moment of entry into the deal is when a white candle rises above the opening level of the previous day. On our chart in a zoomed mode, the entry point is the level of 1.5985.

Points of entry into the option to sell:

Just like with the Call option, the Put option is recommended to open after the formation of two or more rising bullish candles. We sell when the price has been rising for at least two days in a row on the trading day when a falling candle started to form, at the time of overcoming the opening price of the upcoming day.

In a larger segment of our previously seen chart, the point of entry into the market with the Put option will be the level of 1.6570.

SUITABLE OPTIONS

Most often, the traders work under this strategy using classic binary options. It is faster and makes a profit in intraday trading. However, as with any strategy that involves breaking through a certain level, it would be appropriate to use ONE - Touch and Out - Range options with its location above or below the level of the breakthrough.

In this case, for greater confidence in the profitability of the option, you can set the appropriate levels behind the opening price of the current day, which will give a greater percentage of the execution of our option at a profit.

EXPIRATION TIMES

You can choose almost any expiration times for trading under this strategy. From a few minutes to make a profit several times during the current trading day – for the most risky traders, to the end of the trading day to virtually guarantee a profit – for the most conservative ones.

The only thing we strongly advise at trading intraday, during which the most important economic news is released, is to be guided by the time of their release and not to set expiration time at 15 minutes before their release. You do not know the time of the news release?

Use our economic calendar in trading. Each trader knows that there are price fluctuations at that time that may affect the profitability of your option.

PROFITABILITY

Testing of this strategy was carried out on two currency pairs for the current year according to the described above rules of the entry, with the classic binary options with the deals lifetime expiration at the end of the trading day (after the signal appearance only after two bullish or bearish candles).

The test showed the profitability of 75%. This means that 3 profitable deals accounted for one deal that closed at a loss for us. In short, trading under this strategy can be profitable, since the number of signals – and hence the amount of transactions – is sufficient.

You can improve profitability by adding Out - Range and One – Touch options to trading under this strategy. You can also work on the options with a low expiration time in the day of the breakthrough, thus increasing the number of open deals.

MONEY MANAGEMENT

If you are going to trade with one type of option with the expiration time at the end of the trading session, the level of the risk of 3% will be quite suitable for you. Even if the deal is completed not in your favor, you can always make up for the losses by the profitable deals that follow.

If you want to trade in a system of several types of options or with several options during the day on one signal, the amount of the deal must be such that the risk of loss on a particular option does not exceed 2% of the deposit, and the total on all options is around 5% of the deposit.

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